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I believe that "liar liar, pants on fire" derived from a true event. Someone was smoking a cigarette who wasn't suppose to, and put it in their pocket (to hide the cigarette) when spotted. When the person that noticed that person smoking approached them, they noticed their pants were on fire. Hence the saying "liar liar, pants on fire."
I found it on the following website:
http://www.answerbag.com/q_view/92841...
Well, I guess I'll distract you altogether and tell you it was the end of a dumb song kids sang to each other when they got mad: "Liar, liar, pants on fire...your nose is longer than a telephone wire..." (the nose refers to the story of Pinocchio, but I'd think the pants on fire means you're going to get exposed for a liar.)
Sounds alright, huh? maybe?
This is from an old children's rhyme.
Liar, liar, pant's on fire.
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